Over Time #idea

I wonder what a plot of Edge signals over time would look like?

Sine wave?

Predator/Prey oscillator?

I wonder if those plots would be predictive of other things…



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November Performance of Real Time Advisory Service

November Performance of Real Time Advisory Service

Nov 2014 PnL Plot

Annual: +21.8%

Max DD: -3.5%

Sharpe: 4.8

Profitable: 13 of last 13 months

November P&L Table

I am always looking for new clients for the Advisory service. It has been traded with $40m and scales easily into the $200m range.

An overview is here.

We’re good, innovative and friendly – no reason not to call,

Henry Carstens

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How to Independently Verify a Quant System #idea #alphastreamverification

How to independently verify any quant-based system without using or disclosing any proprietary information

One of the biggest problems for prop shops, firms and hedge funds is independently verifying the results of quant-based systems and portfolio managers. Firms need to verify to invest but developers and pm’s don’t want to divulge their proprietary algorithms, their alpha, for verification.

Here is a really fast and easy way to independently verify quantitative results (think hours instead of days, weeks or months):

Turn the alpha into a data stream and send it to the interested party to be tested.

Since any quantitative strategy will have a statistically valid algorithm(s) as the core of it’s alpha, that algorithm can be turned into a data stream which can be independently tested for statistical significance without disclosing any proprietary information to the tester.

For example, my out-of-sample results (Sharpe 5.7) are based on an algorithm called Edge. The amount of alpha in Edge can be independently verified like this:

Edge is a statistical algorithm 

The end product of the algorithm is a data stream, a time series just like ES, US, etc. The data stream runs from 2006-present, 10 minute bars

To verify Edge, run quant tests against the Edge data stream by verifying the trades in the underlying contract are statistically significant


Test without Edge first to establish a baseline: buy when yesterday’s close was lower than the prior day’s close and the market is down today

Exit at 14:00 pm ct today (1st test)

Exit at 14:00 pm ct tomorrow (2nd test)

Now, add Edge. Run the same tests with the additional parameter that Edge > +2 for entry

The second round of tests should be statistically significant with better results than the first if there is any alpha in the Edge data stream

If the results are better and significant, there is verification that the Edge data stream contains a statistically significant amount of alpha

(You can try this yourself, an Intraday Edge data stream is here:  <https://www.dropbox.com/s/i3fgdwk1mzehkyx/msFinancials_intraday_ES.txt?dl=0> )

It can be used to test for Overnight, Intraday and 1 thru 5 day alpha against ES

To vet further, testers can run arbitrary tests against an alpha stream – that’s kind of a cool term – they can even move on to more sophisticated tests like Monte Carlo simulations


Using the steps above, a firm can verify any quant-based system or strategy – often within hours instead of days or months – and developers and portfolio managers can safely submit their work without exposing their proprietary information.



Henry Carstens

PS Lets call the steps above ‘Alpha Stream Verification’ It can also be used to rack and stack submissions to your firm, e.g., Alpha Streams that I can test and verify in hours go to the top of the pile improving both quality and quantity of accepted submissions and throughput for the firm

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Ratio of Immersion to Profits #idea

What is the ratio of immersion to profits?

How to track?

How to test?



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Always In #idea

How is an ‘Always In’ model better, different and/or more focused than a discrete long/short quantitative model?

Where ‘Aways In’ may simply try to capture drift,

Place for options?

Vig kills?

Continuous vs discrete,



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[Saturday Ideas] How Does a Quant Practice? #idea

Lacrosse fall season started last night and I got a note from son’s mom:

Son is best player on field!

Son has worked and practiced hard over the last year, I am proud and happy for him.

I get a second note from mom:

Son signed up for wrong league, playing against kids 2 grade levels down.

Ahh  : )

But, lessons learned and all.

Then applying to markets:

What markets can we trade that are 2 grade levels down? Where is easy?

How do we define easy?

What markets trade 2 grade levels up and we should stay away from?

How do we test markets for grade level?

What other ways are there to think of grade level in the markets:

Day of month?

Day of week?

Percent move?

How does a quant practice?


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Trend Following with Mean Reversion #idea

Trend Following with Mean Reversion

Keep a list of markets that are trending (however one likes to define trending)

Use a favorite reversion strategy to buy/sell pullbacks from the trend

That way you will be trading in direction of the trend, but perhaps using a strategy with a bigger edge – because now you are trading w/ the drift



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September P&L

Strategy Performance

Risk Adjusted, Out-of-Sample

Annual: +24.9%

Max DD: -3.5%

Sharpe: 5.7

Profitable: 12 of last 12 months

12 mos performance

I am looking for a new home for this strategy. It has been traded with $40m and scales easily into the $200m range.

Inquiries and referrals appreciated. A Strategy overview is here,

Henry Carstens

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Epidemic Math #idea #ebola

Epidemic Math

Population of Liberia, Guinea and Sierra Leone is about 21,000,000

There have been 6500 Ebola cases

Reachingh 0.03% of the population

In poorest Africa

Since March 2014


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Strategy, +24.8%, -2.6% MDD, Sharpe 5.6, Looking for Home

I’m looking for a home for my quant strategy.

It has been traded with $40,000,000 over the last 7 months but needs to grow.

Out-of-sample results for last 11 months are:

 Annual return: +24.8%

Max DD: -2.6%

Sharpe: 5.6

Strategy primarily trades Bonds, Bunds, SP, Stoxx futures and is scalable to $200 million without worrying too much about execution.

An overview is here: Vertical Solutions Strategy


Henry Carstens

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